Real Estate Tech – Boom or Bust

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January 20, 2016

Commercial Observer: Real Estate Tech – Boom or Bust
Venture capital investments into real estate related technology companies nationwide were down more than 20 percent for the fourth quarter of 2015 compared with the same time a year earlier, as the market hints at a possible strain on emerging companies.
Real estate tech as an industry raked in an overall $1.42 billion in venture capital last year throughout the country, a new report by RE:Tech shows. New York City made up about nearly 13 percent of that total, amounting to about $190 million in 27 deals, according to a breakdown provided by the company to Commercial Observer. That’s a 21 percent jump in funding from a year earlier for New York City, according to the industry advisory, which has ranked just above Silicon Valley in terms of venture capital performance for the last five years.

Although New York and the rest of the industry had a strong 2015, there are concerns that emerging real estate companies won’t fare as well as some of the more established firms. Rising interest rates and an ebbing real estate market could lead to a correction in the niche industry as investors start to pull out.

New York City-based startups as a whole brought in $5.95 billion in venture capital last year, according to a PricewaterhouseCoopers and the National Venture Capital Association’s MoneyTree report. With 395 investment deals, that was a 62 percent increase from the $3.67 billion raised in 2014. City officials touted the news as proof that the Big Apple has become a destination for startups.

“Investments in real estate technology have been bullish for the past several years,” Ashkan Zandieh, the founder of RE:Tech, said in an email. “While there might be a lot of excitement about the industry from a consumer perspective, investors may be re-evaluating the sector and overall investments.”

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Real Deal: Bankrolling Real Estate’s Tech Boom

Roughly $1.5 billion flowed into real estate tech companies in 2015, and those funds came from an increasingly diverse pool of investors.

In addition to about a dozen venture capital firms, institutional and family organizations — which wouldn’t have touched real estate tech 10 years ago — are expanding their hold on the nascent industry.

“You have everyone from the Milsteins to the Rudins to the Wilpons to the LeFraks all doing deals,” said Zachary Aarons, an angel investor and co-founder of MetaProp, a New York City-based real estate technology “accelerator,” which mentors tech startups.

Aarons said the shift came after many of those companies began using tech platforms in their own businesses. “They were like, ‘Why am I just a customer?’” he said. “That’s a major tectonic shift that’s going to accelerate.”

The move comes as several developers have been getting increasingly involved in technology at large.

In 2015, Silverstein Properties — which invested in Washington, D.C.-based crowdfunding platform Fundrise — launched SilverTech Ventures, an accelerator that houses startups in a cross section of industries.

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CNBC: Big banks continue retreat from mortgages

Big banks are lending less to homebuyers, or they’re making less on loans — and sometimes, it’s a combination of both.

Some are making less on home loans, in part owed to the Fed and its yearslong zero interest rate policy. But the trend also coincides with a rise in nonbank lenders, like Quicken Loans, that have been gobbling up market share in mortgages in recent years.

“The mortgage market is coming off the highs it realized in 2012,” said Erik Oja, S&P Capital IQ banking analyst. “A lot of it is expected, in terms of origination.”

JPMorgan Chase reported net income of $266 million in its mortgage banking division, a 21 percent drop when it announced fourth-quarter earnings last week. The bank also posted a quarterly drop of 25 percent in mortgage originations, which were down 2 percent year over year as well.

Dimon says banks ‘under assault'”A lot of operational complexity to complying” with servicing regulations led to “origination volumes [being] a little lower than we would have otherwise seen,” JPMorgan CFO Marianne Lake said on the company’s earnings call.

Citigroup’s earnings report on its fourth-quarter mortgage originations reflected a 7 percent drop year over year and a 17 percent decline from the third quarter. It reported an even sharper decline in “saleable mortgage rate locks,” or mortgage agreements where potential buyers can lock in rates, of 16 percent year over year and 18 percent from the third quarter.

Wells Fargo announced scant gains for the fourth quarter when it reported earnings Friday.

The bank — which was the only one to post a year-over-year increase in its mortgage business — said residential mortgage originations of $47 billion were down more than 14 percent from the prior quarter, but chalked that up to seasonality. Its mortgage banking division reported $71 million more in revenue, though Wells Fargo attributed this to commercial real estate activity.

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Bloomberg: Millennials, Here’s What Your First Home Might Look Like

The contemporary farmhouse, designed for buyers age 35 and younger, has an open plan design, an outdoor kitchen, and a suite of rooms accessible by a side entrance. That way, the owner can take on a lodger or, if she decides to start a family, give the tenant the boot and reincorporate the rental space into the home.

Is that what millennial homebuyers want?

It’s one idea. Pardee Homes, a subsidiary of Irvine, Calif.-based Tri Pointe Group, built the concept home1 to show off at the National Association of Home Builders trade show in Las Vegas this week. Its estimated price tag in the “mid-$300,000s” makes it more expensive than a traditional starter home in the Las Vegas market. In return for the higher price, Pardee is selling the idea of a home that can serve young buyers from one life stage to the next.

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MReport: The Rent vs. Buy Dilemma: Affordability Depends on the City

Many economists expect home prices to continue their upward trend into 2016 but at a slower pace. Although home prices continue to rise, purchasing a home is still a better choice across the U.S. compared to renting.

For many years, buying a home has been considered to be an obvious choice when compared to renting a home, but this is not always the case. For some, it may make more sense to purchase a home versus renting a home and vice versa.

A new report from Smartasset found that the answer is simple: It all depends on where you live.

Today, there is no clear answer to the rent versus buy question. In some cities, and for some individuals, buying a home may make more sense, while for others, renting a home may be the better choice.

“If you were spending 30 percent of your income on housing anyway, might as well spend that hard-earned dough on something that would retain its value for you in the future,” Smartasset said. “Renting, in contrast, was like lighting your money on fire and tossing it in the trash. The rent versus buy decision was a straightforward one.”

The report continued, “That all changed in 2007, when the housing bubble that had been silently growing suddenly went pop. A house, it turned out, could lose value—and, as some real-life cases demonstrated, could do so in spectacular fashion. Those with the misfortune to buy at the peak of the market in 2006 lost thousands or even millions of dollars overnight. Mortgages went underwater. A foreclosure crisis ensued. Meanwhile, the renters of the world were doing relatively well.”

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Home Builder Sentiment Steady but Misses Forecasts

A gauge of home builder sentiment remained steady at 60 in January, the National Association of Home Builders said moments ago, but missed economists forecasts

That was unchanged from a downwardly-revised reading in December. Economists polled by MarketWatch had expected a reading of 62.

Readings over 50 signal improvement, and readings in the low 60s show “a gradual improvement, which should bode well for future home sales in the year ahead,” NAHB Chairman Tom Woods said in a statement.

The index is down from a 10-year high of 65 in October, but still higher than the overall 2015 average of 59.

Builders have gained confidence as the improving economy tugged the jobless rate to a 7-year low and started to nudge wages higher. Sales of new homes were stronger in 2015 than 2014. But builder still face headwinds, including pricier lots and scarcer labor.

That’s made many investors wary of builder stocks. KB Home shares slid earlier this month when fiscal fourth quarter earnings missed forecasts, even though orders and revenue both grew by double digits.

DSNews: Consumer Credit Rebounds While Mortgage Default Rate is Still Rising

December painted a different picture for consumer credit default than November, with most indices either holding steady or doing an about face from the previous month, according to the S&P Dow Jones Indices and S&P/Experian Consumer Credit Default Indices for December 2015 released Tuesday.

The composite index remained unchanged from November to December at 0.97 percent; however, the first mortgage default index—one of four indices that make up the composite—ticked up by two basis points from 0.82 percent up to 0.84 percent. December marked the third consecutive month with an increase for the first mortgage default rate, which climbed by one basis point in November and five basis points in October.

Even after the three straight months of increases, December’s first mortgage default rate was still down by 18 basis points from December 2014’s rate of 1.02 percent. The second mortgage default rate held steady in December at 0.67 percent after spiking by a total of 20 basis points over the previous two months. December 2015’s second mortgage default rate of 0.67 percent is up by eight basis points year-over-year.

As for the remaining two indices that make up the composite rate, the default rate on auto loans was unchanged over-the-month in December at 1.04 percent while the bank card default rate plummeted by 42 basis points down to 2.49 percent.

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Earnings Round-Up

-Bank of America said its fourth-quarter profit rose, though the second-largest U.S. bank by assets labored through a tough trading market.

The Charlotte, N.C.-based bank reported a profit of $3.34 billion, or 28 cents a share. That compares with a profit of $3.05 billion, or 25 cents a share, in the same period of 2014. Analysts polled by Thomson Reuters had expected earnings of 26 cents a share.

Revenue rose to $19.53 billion from $18.73 billion a year ago. Analysts had expected $19.82 billion.

Tuesday’s earnings close the door on a year in which Chief Executive Brian Moynihan had hoped to demonstrate the bank’s earnings power in the absence of the large legal bills that characterized much of his tenure. Although profits did improve, Bank of America had a number of stumbles along the way, including a flubbed submission in the Federal Reserve’s annual stress test and a shareholder battle over whether Mr. Moynihan should remain chairman of the bank’s board.

-Morgan Stanley swung to a profit in the fourth quarter, helped by gains in its equities and merger-advisory divisions as the Wall Street firm continued to weather a slump in debt-market trading.

Shares rose 3.4% premarket as earnings and revenue beat expectations.

Morgan Stanley earned $908 million, or 39 cents a share. That compares with a loss of $1.63 billion, or 91 cents a share, in a year-earlier period that included a $2.6 billion settlement over the sale of mortgage bonds.

The firm earned 43 cents a share, excluding certain accounting expenses. On that basis, analysts polled by Thomson Reuters had expected earnings of 33 cents a share.

Revenue totaled $7.74 billion, little changed from a year earlier. Excluding accounting adjustments, revenue was $7.86 billion, besting the $7.59 billion.

Politico: Mayor’s Wealth Rises in NYC Property Boom

In the latest sign of New York City’s booming real estate market, the total market value for all property has crossed the trillion-dollar mark for the first time in history.

The city’s entire market value for Fiscal Year 2017, which begins on July 1, equals $1.072 trillion, a 10.6 percent increase from the current fiscal year, according to documents released on Friday by the city Department of Finance.

The agency estimates that 89 percent of the spike comes from a strong market, and the other 11 percent can be attributed to new construction and apportionments. The total was also bolstered by a skyrocketing rental market in Brooklyn.

Mayor Bill de Blasio’s two Park Slope homes went up a combined 14 percent in market value from last year, and now are worth $3.24 million, according to the individual property information. He currently lives in Gracie Mansion and rents both of those houses.

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Still to come this week:

This morning

Housing Starts come at 10am ET, after starts in November rebounded from a seven-month low and permits surged to a five-month high, showing signs of strength in the housing market


Existing Home Sales for December will be reported at 10am ET. The National Association of Realtors is forecasting that total existing-homes sales in 2015 increased 6.5% compared with 2014. As of December, existing-home sales were at an annual rate of around 5.26 million – the highest since 2006, but roughly 25% below the prior peak set in 2005 (7.08 million), NAR says in its 2016 forecast.

Have a prosperous day!

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